When total expenses exceed total rental income.
Renting out real estate property is generally considered a passive activity.
A PAL occurs when total losses (including prior year unallowed losses) from all your passive activities exceed the total income from all your passive activities.
Form 8582 is used by noncorporate taxpayers to figure the amount of any passive activity loss (PAL) for the current tax year and to report the application of prior year unallowed PALs.
Form 8582 , Passive Activity Loss Limitations, is used to summarize income and losses from passive activities and to compute the deductible losses. [check this form in the total print out of all worksheets and forms]
